Equal Rights Spurred Productivity

http://economistsview.typepad.com/economistsview/2012/05/equal-rights-spurred-productivity.html

Friday, May 18, 2012

Chrystia Freeland highlights research showing that reduced discrimination over the last 50 years gave the economy a substantial boost -- increased fairness gave us increased efficiency. Unfortunately, however, it appears that new barriers may be emerging:

Equal rights and the U.S. economy, by Chrystia Freeland: Are equal rights good for the economy? ... A draft paper by four U.S. economists makes the strong empirical case... Fairness, they contend, has made the economy more productive. Chang-Tai Hsieh, Erik Hurst, Charles Jones and Peter Klenow argue that as much as 20 percent of the growth in productivity in the United States over the past 50 years can be attributed to expanded opportunities for women and blacks. ...

Few women or blacks would describe the United States today as a perfectly color- or gender-neutral economy. But ... female and black workers have felt the change directly in their paychecks. According to the paper, the reduction in frictions since 1960 increased real wages for white women 39 percent; those of black women, who suffered double discrimination and therefore got a double boost, 57 percent; and those of black men 44 percent.

But while the economy as a whole benefited, there was one group that lost out. The paper calculates that the “reduced friction” for women and blacks meant that the real wages of white men were 4.3 percent lower than they would have been without the increased competition. That result explains a political reality that we often don’t like to admit: Gains for women and blacks have come at a price for white men, and that is surely why some of them still resist the rights revolution. ...

Hurst made sure I understood that this final point was just a hypothesis. The economists plan to run it through their model over the next few months and report on their results later this year. But if their theory pans out, their work will tell a story about America over the past 50 years that many of us intuitively will feel to be true – a country that discriminates less and less on the basis of gender, race and now sexual orientation, but where the class divide is becoming so stark as to constitute a new form of discrimination.

Increased inequality and the associated decrease in mobility are usually presented as as issues of fairness, but when barriers prevent people from realizing their potential that has implications for efficiency as well. It hurts both individuals and the economy as a whole when some groups of people face "external barriers."